According to the most recent report released by Harvard's Joint Center for Housing Studies, the housing market has definitely entered a down cycle, but is unlikely to suffer or have a severe reversal.
Even in the face of rising interest rates, crumbling affordability and rising inventories the market will experience a modest downturn, unless jobs growth and the broader economy collapse, according to the study.
"There may be tough times ahead, but housing will emerge stronger than ever," says Nicholas Retsinas, director of the Joint Center of Housing.
The number of homes needed to fill demographic changes and populations over the next 10 years will likely exceed 18.1 million units built from 1995 to 2004.
While the study rates the risks associated with adjustable rates, easy down payment requirements, and liberal underwriting standards as "uncertain" and "worrisome" it does not see a rush of foreclosures and forced sales.
"Having significant home equity is the best protection against foreclosure because homeowners can sell at a profit if they cannot cover their mortgage payments," says Mr. Retsinas.
Factors that support a continued solid housing market include:
Thriving household growth - Over 1.37 million new households will be added nationwide this year from population growth and foreign immigration.
Boomers going gray - The aging ranks of boomers is increasing the ranks of investors with vacation or second homes. This trend will increase as they near retirement.
Household composition changing - There is an increasing trend of more single-person households through divorce and adult children moving out on their own. Family size is shrinking creating more households from the same population.
Minorities on the move - The past 10 years have seen great strides in homeownership among Black and Latin minorities.
Government influence - Land use restrictions, zoning laws and building are limiting the suppy of housing. Retsinas says, "In many areas we see such an anti-development bias. And the trend is to more restrictions, not less, even though markets are softening.
Bottom Line - Retsinas summarizes, "Long term fundamentals are still positive, but some areas may be more susceptible to a slide."
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